Is Your Startup a Good Fit?

Dec 19, 2023

In a previous post, we discussed the consequences when startup owners bring in the wrong investor. In this post, let's explore the opposite scenario when a startup is not a good fit for investors. It could be either too early in its development, the market size might not attract investor interest, or the startup project itself presents unbalanced conditions for a future partnership.

Two executives handshake as partners after the successful meeting.

Viewing investors as partners in your business is crucial—they provide founders with the opportunity to realize their project. A suitable investor can offer valuable contacts, potential contracts, and expert advice.

However, if an entrepreneur seeks investors only willing to take financial risks without being prepared to share the future rewards fairly, it becomes challenging to secure financing for such projects. This approach can result in prolonged fundraising efforts, and, as we know, speed is a critical parameter for entrepreneurs. Losing momentum, the specific pace at which a startup progresses, can significantly impact the team's belief in the project's success.

Several key principles follow from this: entrepreneurs should actively seek funding in an open and transparent manner, and they must clearly understand and take into account the investors' interests. 

Letter block in word high risk on wood background

Let's delve deeper into the challenges that arise when a startup is not aligned with investor expectations. For instance, if a startup is in its early stages and approaches investors seeking substantial capital for unproven concepts without a clear path to market, it may face resistance. Investors often prefer startups that have demonstrated some level of validation, whether through a working prototype, market research, or initial customer traction. But even in the absence of those early-stage proofs, if an investor still believes in your proposal, it means this investor is ready to take on your risks. However, in return, they might seek a larger equity share, greater control leverage, or propose a combination of equity and debt structuring. All these parameters should be thoroughly weighed by both sides and considered carefully.